Online gambling fraud: Betting on identity verification

When you think about online gambling, what first comes to mind? Sports betting? Slots? Poker? All of the above play a role in what has now become a $81.08 billion industry. Worldwide gambling statistics show that 17% of the global population gambles online, equating to 1.3 billion people that like to try their luck in digital casinos. 

The ABCs of virtual casino fraud

Wherever there’s money, there are also fraudsters. Anticipating and preventing their activities is one of the toughest tasks for online gambling companies across the board. There are many types of gambling-related fraud. First, let’s talk about the most common one – multiple account fraud. While the name is self-explanatory, there are three main reasons fraudsters create multiple accounts. 

  1. Gnoming: When a player uses additional accounts to place bets after maxing out on the betting limits of their initial account. 
  2. Bonus abuse: Repeatedly collecting funds from special offers meant for new customers. The fraudster creates an account, withdraws funds, and abandons the account before creating a new one under a different email/alias. 
  3. Chip dumping: Most common in the game of online poker, a fraudulent player has multiple accounts “sitting” at the same table to manipulate the game in favor of one of those accounts.

There are also examples of online gambling fraud involving credit card fraud, including buying credit with a stolen card. In addition, chargeback fraud is when a player who lost their money calls their bank to report a stolen credit card, in hopes of having the money refunded.

The dangers of money laundering and terrorist financing 

We have already touched on the popularity of online gambling and how financial criminals impact the industry. However, common financial fraudsters are not the only example. Current international AML (anti-money laundering) and CFT (combating the financing of terrorism) laws need updating with regard to online gambling regulations — especially when it comes to risk assessment. 

The bookmaker Betfred has been fined nearly £2.9m for failings in its social responsibility and money-laundering controls, after accepting tens of thousands of pounds from gamblers without performing adequate safety checks.

Since money laundering involves the process of disguising the true origin of funds, it’s no surprise that criminals abuse the gambling industry as a hiding spot for their money. In this case, funds are always obtained illicitly, whereas, in terrorist financing, funds can come from both legal and illegal sources. Terrorism financing in online gambling focuses on concealing what the money will be used for and typically involves what is known as ‘reverse’ money laundering. Unlike money laundering, the final destination of the money is concealed, not the origin of the funds.

Money laundering involves disguising the true origin of funds, and criminals abuse the online gambling industry as a hiding spot for their money.

Because gambling companies are responsible for keeping their business free from money laundering and terrorist financing, they must have comprehensive compliance programs to prevent these activities. Depending on the jurisdiction, online casinos need to comply with different directives and regulations. For example, in the US, there is the federal Bank Secrecy Act (BSA), while in the UK, all gambling companies are subject to the Proceeds of Crime Act (POCA)

Before deciding on appropriate security measures, it’s important to conduct an AML risk assessment to identify potential risk sources. A risk-based AML approach ensures that honest players can access the services provided by online casinos, but creates obstacles for those with malicious intent. 

KYC for the win

KYC (Know Your Customer) refers to a set of processes that allow banks and other financial institutions to confirm the identity of organizations and individuals they work with. It also ensures that everybody involved acts according to the law.

In the case of online casinos, regulators mandate that every player has to be verified to prevent fraud — from theft practices, to money laundering, to underage gambling, and so on. It’s important to note that every jurisdiction has its own unique requirements. 

For example, The United Kingdom Gambling Commission (UKGC) has licensing conditions stating that players must be verified before they deposit money and start playing. Verification includes presenting an identity document and providing a name, address, and date of birth. Prior to these recent requirements, players could sign-up, play, and casinos would verify their ID and do all necessary KYC checks only before the player withdrew their winnings.

There is no doubt that KYC steps provide additional security for gambling companies and their customers, but no system is perfect. For starters, ID verification is often a lengthy process. Online casinos have entire compliance teams manually examining and processing players’ identity documents. Sometimes it takes hours, even days, to confirm the player’s identity. Online casinos have tried to speed up the process by requiring players to take selfies while holding their ID. While this has expedited matters, a human still has to look at the photo and decide whether the person holding the document is indeed the rightful owner.

Long processing times, of course, deter players who are eager to start gambling, especially if there is an impending sporting event they want to place a wager on. Having a customer onboarding experience with a long sign-up form and waiting time is not something that keeps players interested and excited. 

AI & Identity Verification: The future of gambling security

Online casinos have always put security first and customer experience second. The reasons behind that are justifiable, as huge fines tend to follow KYC failures. In addition to losing millions from fines, casinos can have their licenses suspended or revoked. 

As identity technology advances, it’s the casinos that will feel lucky. Today, there are fully-automated identity verification solutions powered by AI and biometrics. The most reliable and easy-to-use solutions require players to scan their ID and take a selfie. By using facial recognition, AI technology compares the selfie with the photo ID to ensure that the person trying to play is who they claim to be. 

The player scans their ID and takes a selfie. Using facial recognition, AI technology compares the selfie with the photo ID to check the player’s identity.

Aside from just identity verification, the best solutions also provide age verification to eliminate underage gambling. When a player scans or uploads their ID document, the reader recognizes the date of birth and alerts the gambling provider if it is below the set age limit. The entire verification process can typically occur in less than 10 seconds and without a human in the loop. 

The European Commission announced a plan to create an eID, enabling European citizens to share electronic documents. While the digital ID aims to smooth all kinds of financial transitions, the European Gaming and Betting Association finds it beneficial for the iGaming industry.
نوفمبر 8, 2022

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